CreditAccess looks to sell off India biz to new owner with $2.7 bn valuation

India's largest microlender Credit Access Grameen Ltd may soon have a new owner with its Dutch promoter looking to exit, two people aware of the development said.

The Netherlands-based CreditAcccess India B.V., which holds a 66.56% stake, is seeking a valuation of around $2.7 billion for the microfinancier, the people said, in what would be the biggest deal in India's $51 billion microfinance industry.

The promoters have already hired investment bankers Jefferies, Barclays Investment Bank and Bank of America to shortlist buyers, said one of the people cited above, both of whom spoke on condition of anonymity.

The investment bankers have already reached out to some privately held banks and large financial institutions, the people cited above said. If the deal talks go through, the takeover will entail an open offer, since CreditAccess Grameen is a listed firm. It will also require approvals from the Reserve Bank of India and the Securities and Exchange Board of India.

Promoters and investment bankers are contemplating a valuation of ₹23,000-24,000 crore for CreditAccess Grameen, said the two persons. According to its Friday closing price, the company has a market value of ₹20,000 crore. "Given its unique positioning and low cost to asset supporting sustained interest income margin growth, the business of CreditAccess Grameen should command 15-20% premium on the current market value, and preliminary talks for the potential takeover have attracted several banks," said the first person.

Largest microfinance firm

CreditAcccess India B.V. is backed by US-based private equity firm Olympus Capital Asia, Asian Development Bank, a clutch of family offices and high networth individuals. With gross loan assets of ₹26,700 crore at the end of FY24, CreditAccess Grameen is the country's largest among 87 microfinance firms.

In the promoter group entity—CreditAccess India B.V.—Olympus Capital Asia, a fund that focuses on mid-cap Asian companies, alone holds 15%.

Emails sent to CreditAccess India B.V, ADB, Olympus Capital, CreditAccess Grameen, Paolo Brichetti (founder of CreditAccess India), as well as to Daniel Mintz and Frederick Long (founders of Olympus) remained unanswered. Barclays Investment Bank declined to comment.

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Spokespersons from Jefferies and Bank of America declined to comment on the story.

Asian Development Bank owns 9% in the promoter entity, while around 50% is held collectively by a bunch of family offices and HNIs.

To be sure, CreditAccess India BV has been reducing stake in the lender over the past year. In June 2023, it sold 5.8% of its stake worth about ₹1,100 crore through a block deal.

Surviving crises

Founded in 1999 in south Bangalore as a non-government organization by T. Muniswamappa Trust (TMT) to support bottom-of-the-pyramid women and their entrepreneurial activities, CreditAccess Grameen survived multiple crises in the microfinance space over the past decade to became a non-banking finance company in microfinance (NBFC-MFI) business under the supervision of Reserve Bank of India in 2007. It was taken over by the Amsterdam based promoters in 2014. The company lends in 16 states through 1,976 branches.

In its early years, The Grameen Trust, Bangladesh had provided $35,000 in seed capital funding to TMT for replicating the Grameen Bank Bangladesh microfinance model that was inspired by Bangladesh's Nobel laureate Muhammad Yunus.

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In FY24, total income touched ₹5172.65 crore, from ₹3,550.8 crore in FY23 and just ₹147.8 crore in 2014 when the Amsterdam-based promoter took over. Since listing in August 2018, its stock has gone up from ₹422 to ₹1,253.

According to a 12 April, 2024 report by Goldman Sachs, CreditAccess may continue to grow faster than its rivals in the coming days. It said CreditAccess's district-based expansion strategy has enabled "lower credit costs and higher operating leverage".

"This approach is expected to drive major growth, with a projected loan book of approximately ₹ 51,900 crore by financial year 2028 estimate (FY28E)," said Goldman Sachs.

Stable asset quality

Conservative practices and geographical diversification have helped the lender maintain relatively stable asset quality compared to industry peers, said the report.

CreditAccess Grameen has diversified its borrowing sources away from traditional bank credit, unlike many other NBFC-MFIs.

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This may provide CrediAccess Grameen a long and sustainable runway for growth, particularly amid potential rises in bank loan pricing, says Goldman Sachs, predicting a 21% growth in the lender's profit over FY24-26.

Driven by 229 lending entities, India's microfinance industry recorded a 24.5% YoY growth in gross loan portfolio to ₹4.34 trillion catering to 78 million borrowers in FY24. Within this, the 87 NBFC-MFIs have a 39.4% market share, followed by banks at 33.2%, small finance banks at 17.1%, and other NBFCs at 10.3%.